China’s THAAD retaliation may cost Korea’s GDP $14.76bn: private study

2017.03.08 15:41:07 | 2017.03.08 17:29:56
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China’s economic retaliation against South Korea’s decision to deploy U.S. antimissile system Terminal High Altitude Area Defense (THAAD) could impair trade-reliant Korean gross domestic product by up to $15 billion, a private economic research institute study showed on Wednesday.

The economic loss would be between $7.69 billion or 0.59 percent dent on the GDP and $14.76 billion or 1.07 percent cut in GDP depending on the ramifications and scope of retaliatory actions, said a study by Jang Woo-ae, senior researcher at Economic Research Institute of Industrial Bank of Korea.

Jang predicted the latest anti-Korean sentiment in China due to the THAAD deployment would deal a heavy blow to the Korean economy in which exports take up 45.9 percent of its GDP and outbound shipments to China comprise 26.0 percent of the total export.

In Scenario 1 assuming a 5 percent drop in exports to China, 20 percent fall in Chinese tourists to Korea and 10 percent decline in earnings from entertainment contents sales to China, Jang estimated Korea’s economic losses to reach up to $7.69 billion and GDP growth trimmed by 0.59 percentage point. Tourism and entertainment businesses are the two sectors that Korean companies rely more heavily on China than other industries.

In Scenario 2 with more conservative supposition of a 10 percent drop in shipments to China, 30 percent fall in Chinese tourists to Korea and 20 percent decline in earnings from entertainment contents sales to China, Korea would see its economic damage double to up to $14.76 billion and growth slow down by 1.07 percentage points, stated the study.

The contraction in export, tourism and entertainment sectors would force Korean companies to slash jobs and cut spending that would eventually lead to a drop in private consumption, warned Jang.

Jang’s study came after Beijing has purportedly launched a series of retaliation measures against Korean businesses over Seoul’s deployment of THAAD. Lotte Group that has agreed to supply its land for THAAD deployment has seen its retail business outlets in China shut down. Chinese investors have also cashed out from Korean stocks amid escalating THAAD tension since February.

Jang conducted the latest study based on aftermath of territorial disputes between China and Japan dating only several years back.

Japan and China have been quarreling over ownership of a group of uninhabited islands, known as the Senkaku Islands in Japan and the Diaoyu Islands in China, over decades. The first major territorial dispute in recent years erupted on September 7, 2010 when Japanese patrol vessels and a Chinese fishing boat collided in the disputed waters near the islands and a Chinese fisherman was detained by the Japanese coast guard. The territorial dispute continued on to result in the second major one that started on September 11, 2012 when the Japanese government purchased three of the disputed islands from their "private owner."

The second territorial dispute between the two nations led to a wider spread of anti-Japanese sentiment in China, resulting in local consumer’s boycotts against Japanese goods and massive public demonstrations across the country. China’s strong protests cost Japan’s export volume to China a fall of 20.6 percent in 2011 and 6.4 percent drop in the following year, and the number of Chinese visitors to Japan plunged 28.1 percent over 11 months since October 2012.

Considering Japan’s GDP reliance on exports and China is less than Korea’s, China’s economic retaliatory actions would cost Korea more than Japan, Jang expected. Exports make up 17.9 percent of Japan’s total GDP and 17.5 percent of its total overseas shipments are bound for China.

By Boo Jang-won

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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